Chinese Regulation: Lithium Demand Constraint?

Developments in China's electric bicycle industry over the last decade have dramatically impacted lithium investors; production has grown from a few thousand bikes a year less than 10 years ago, to more than 22 million units last year. Annual sales have reached about $11 billion, with an estimated 120 million electric bikes currently in use.

Manufacturers believe exports will grow quickly, especially to Europe and North America, which accounted for more than 70% of the nearly 1M bikes exported last year. One in every eight bicycles sold in the Netherlands these days is electric. It is reported that Chinese manufacturers secure an average price of $377 on a marginal basis per exported bike, compared with less than $100 three years ago and just $46 for a pedal bike.

Until recently, there were very few laws regulating these electric bikes, with no registration process and no driving license requirements. More Chinese cyclists, it seems, would like a battery and motor to turn the wheels for them. Production of ordinary bicycles, which peaked in 2006 at nearly 80M units, has since fallen by more than 25%. But as with many Chinese businesses, the electric bike industry is plagued by overproduction capacity, resulting in thin margins and variable quality. More than 2,600 firms had permits to make electric bikes last year, though only around 1,000 are thought to be using them.

In theory, the government has limited electric bikes' top speed to 20 km/hour; though, actually, most go much faster. Numerous cities have imposed restrictions of various types at a municipal level. At night pedestrians are at particular risk, because many e-cyclists drive without lights to save power. The government is suddenly paying attention, but the mechanism of regulation is pulling it opposite directions. On one hand, the government needs to protect pedestrians and drivers; however, it also wants to encourage e-cycles to curb the pollution and congestion created by other vehicles. Struggling with reconciling these divergent mandates will certainly capture interest for lithium investors and the manufacturers of various types of lithium batteries.